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Property Transfer tax or IVA (V.A.T.)

Which of these two taxes is levied will depend on the type of property you are purchasing. The property transfer tax is levied on resale properties and is charged at 6% of the new escritura value (purchase price).

If you purchase a newly e Al built property from a developer you will pay a different tax called I.V.A. (V.A.T.) is charged at 7% of the selling price plus 0.5% stamp duty.

Plus Valia (local municipal tax)

This tax is based on an officially assessed increase in the value of the land since the last time the property was sold. This can be quite small if purchasing an apartment, but expensive on a villa with a large plot, which has not changed hands for years. Find out the exact amount from the town hall. Do not confuse this tax with the seller's capital gains tax on his profit on the sale.

In practice "who pays what" is negotiated with the final selling price and this must be stipulated, as well as listing the contents/fittings to be included in the sale, when the owner accepts your final offer (in writing).

BUYER PAYS:
In accordance with Spanish law, the buyer is responsible for:
Transfer Tax or
(I.V.A. + stamp duty when buying from a developer)
Property Registration fees
Notary charges

THE SELLER IS RESPONSIBLE FOR:
His own capital gains tax on any increase in escritura value
Plus valia tax
Notary fees
Selling agent fees
The normal custom is for the seller to pay "Plus-Valia". If, however, the buyer agrees to pay this tax, please remember that it is registered against the land and you will have to pay if the vendor fails to do so. This tax is often not demanded until some time after completion.
New Properties

For new properties, ask the seller to show you the Declaración de Obra Nueva, the declaration of new construction, together with a copy of the Declaración de Alteración de bienes de naturaleza Urbana, the declaration of alteration of property of an urban nature, which both demonstrate that the property has been registered for eventual payment of I.B.I..

Withholding Tax

If you buy a property from a non-resident person or a company, you must withhold 5% of the purchase price; The hacienda (tax office) make it the buyer's responsibility that this amount is paid to the tax authority on account of any liability by the vendor to Capital Gains Tax.

Capital Gains Tax

As the buyer must ensure that 5% of the purchase price is paid to the Hacienda, it is clearly in the interests of the seller to have this value as low as possible.

If the seller's original Escritura value shows he purchased the property at 6,000,000 pesetas, and your Escritura is drawn up to show that you paid 10,000,000 pesetas - the buyer will show a profit of 4,000,000 pesetas, which is taxable. So the seller may suggest that you pay 10,000,000 pesetas, but 3,000,000 pesetas was for the furniture, giving an Escritura value of only 7,000,000 pesetas.

This has three main effects; the buyer now only has to retain 350,000 pesetas, and not 500,000 pesetas for the Hacienda retention. The seller's taxable 'profit' is now 1,000,000 pesetas, not 4,000,000 pesetas. It will be the same when the buyer sells, a low Escritura 'buy' price will become more 'profit' later.

It is obviously in the seller's interest to show less than the real purchase price. It is the buyers interest to show as much as possible of the purchase price on the Escritura. A sensible compromise is usually reached by mutual agreement.

Escritura values that are clearly below any reasonable market value may be penalised by the Hacienda at a later date. It is fairly reasonable to allow 1,000,000 PTAs for the furniture, thus, the Escritura value will be 1,000,000 PTAs below the actual price paid, and this is acceptable to the Hacienda.

Spanish Inheritance Tax

You need to make a Spanish will disposing of your Spanish property in order to avoid time-consuming and expensive legal problems for your heirs. Make a separate will to dispose of assets located outside of Spain. Use a Spanish lawyer.

As a foreigner, you will probably find that Spanish authorities do not oblige you to follow the Spanish law of compulsory heirs, in which you must leave two-thirds of your estate to your children. You can probably leave your estate to whomever you choose, but you will be subject to Spanish inheritance tax, which can be high when property is left to non-relatives.

There are very few ways around Spanish inheritance taxes and these legal ways require careful advance planning. Spanish law provides no large exemption from inheritance tax, such as most countries have when the family home is transferred. The tax is due after the first two and a half million pesetas.

However, if you are an official resident of Spain leaving your principal home to a spouse or child, you may be eligible for a 95 per cent reduction in the value of the property for inheritance tax calculation. This is not available to non-residents. There is a limit of 20 million pesetas. The exemption, of 2.6 million pesetas, goes to each inheritor. If you have an estate worth 30 million pesetas and you leave it to your two children, each takes his exemption and the estate is valued at 25 million pesetas. This draws inheritance tax of about 3.8 million pesetas. If you are leaving your property to a non-relative, however, the tax is doubled, to 7.6 million pesetas. A Spanish lawyer can tell you exactly how much your tax will be when you go to have your will made.

Outstanding Debt

If there are any debts, outstanding mortgages, unpaid Community fees etc, then you should make sure that these are paid directly to the debtors first, and the seller gets the balance of his money once all other interests in the property have been settled from the purchasers money. The conveyancer will help you ensure that all of the various bank certified cheques required for the different parties are drawn up by the buyers bankers - ready to hand over at the notary office on the day of completion.

Property Owners Association

If you purchase an apartment in a block, townhouse or villa in an urbanisation, you will automatically become a member of the property owners association, with the right to vote at the AGMs, which administers general maintenance of zones of common ownership, such as streets, gardens, hallways and swimming pool etc. An annual budget is calculated to cover these costs, which is divided between all owners according to the size of their properties. Fees depend on the services offered and are reflected in the annual amount.

Check the latest receipt for the payment of monthly or yearly maintenance charges "cuotas de comunidad" and discover how much you will have to pay. It is advisable for your legal representative to obtain a certificate from the association that there are no charges outstanding.

Ask the president or the administrator for a copy of the meeting minutes and the community regulations. The minutes should highlight problems, such as failing water supply and the regulations will confirm your rights.

Please note as some communities have special rules it is advisable to check up if there is anything special such as "no dogs" etc. Other items such as domestic services, electricity, water, & telephone are metered and charged as used.

If the building belongs to a community it is important that the property has a public title deed Escritura in which the plot as well as the house is shown. The community of owners is the legally registered body that administers the urbanisation or apartment building.

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